Donald Trump: Political Alpha Incarnate

As most of you know, I’m a millennial. I don’t have a finance background, but what I do have is a very special set of skills, honed over decades of playing video games of all kinds. I was never all that great at first person shooter games like Halo or Call of Duty. My hand eye coordination was never good enough to compete at an incredibly high level, so instead I relied heavily on strategy.

But with enough strategy you can compete in games that do require some hand eye coordination and fast reaction times because in the end it all comes down to anticipating your opponents next move. If you can do that well enough you don’t need to be fast, you just need to be ready to pounce [inserts clip of shadow word: deathing a blind].

This article was originally supposed to be about Donald Trump, and it is, but it’s also about games, and understanding that in markets we are in the end playing a game with rules.

“I’ve seen an agent punch through a concrete wall. Men have emptied entire clips at them and hit nothing but air, yet their strength and their speed are still based in a world that is built on rules. Because of that, they will never be as strong or as fast as you can be.”

These rules do change, and when they change boat loads of money can be made (and the machines defeated), but what I find most interesting right now is that while investors are so preoccupied with looking for the rules to change that maybe JUST MAYBE they’ve missed the fact that the rules have already changed, and after nine long years a lot of investors still refuse to play by the “new” rules.

Because global markets as “the bears” like to complain are heavily manipulated which destroys capitalism and all that other good stuff, and they are 100% correct, but until they do change we must continue to play by these rules. Full stop.

[Video game life lesson incoming which actually turns out to be self serving attempt to relive author’s glory days]

Fortunately, I learned this lesson while playing World of Warcraft where the game developers would constantly shit on the mechanics and meta of the current competitive PvP scene to suit the masses. Time after time I would get my shit pushed in by an assortment of randos and noobs who despite having no skill were able to absolutely destroy whatever I was doing simply because the new rules suited them much more than my character and team composition (sound familiar?).

This was an unbelievably frustrating but inevitably enlightening experience, because one day I got tired of fighting the rules and I joined the crowd, and started to use the rules to my favor.

So I got a few friends and we built a counter comp (Paladin Hunter Death knight or PHD) to the most popular comp (at the time this was Rogue Mage Priest or RMP) and would run it every time we saw those guys queuing. We ended up reaching the 2nd highest rating on the toughest battle group outside of South Korea. My hunter character also became the highest ranked hunter in the world at the time, despite having rarely played it and being equipped with outdated and inferior gear.

If we look at the bull market post GFC it has been one marked by dumb money absolutely truck sticking (technical term) the “smart” money. That’s because we live in a highly managed economy and the supposed smart money is still playing by the old rules. Whether it be the recent Shanghai Accord, on going trade negotiations or the fact that Central banks have literally PINNED interest rates across the curve, instead of accepting managed markets as a fact of life, investors continue to fight the manipulated markets to their dying breath and last ounce of AUM. Which brings me to the thrust of this blog post…

I think understanding Donald Trump is one of the greatest sources of alpha in today’s highly managed political economy…

As President of the most powerful country on Earth, Trump is seeking to use the tools at his disposal in ways we haven’t seen a US president do since Reagan. Now I’m not saying the rules have changed, but one of the most important players has, and the consensus narrative from day 1 on around this player has been exactly wrong. A huge source of the misconception is that consensus sees the world as it used to be two decades ago, but Donald sees it much closer to how it is and more importantly where it is headed. So does his ex-chief strategist, Steve Bannon.

You can belittle them, call them racists, idiots whatever you want but what you absolutely shouldn’t do when it comes to an investment strategy is Fight The Donald.

The article Jawad Mian of Stray Reflections ReTweeted was written in April 2017. It’s title:

Trump is heading for a do-nothing presidency

Whether it’s North Korea, NAFTA and other trade related negotiations, Tax Reform, the overhaul of the Justice system, after just 18 months in office it’s hard to remember a president in living memory who has done more in their entire tenure. This is especially incredible when one considers the majority of the mainstream media apparatus has thrown its full weight against him.

And this is my point. The consensus viewpoint on “The Donald” is so completely and utterly wrong it defies belief. As Scott Adams constantly likes to say “half the country is watching a completely different movie”.

Scott Adams talks about the Holocaust movie half the country is experiencing. Bring coffee. https://t.co/WoxY2wvUF3

Or the consensus opinion of macro analysts and investors, there seems to be a complete dearth of intellectual and independent thought coming from a large swath of people. Collectively they’ve lost the ability to objectively reason and analyze political events.

.@TheEconomist does it again. Could not disagree more. Seems like almost everyone is overreacting to short term fluctuations and ignoring the long term improvements in the global geopolitical structure. pic.twitter.com/uY6Y79Evi9

Time and time again, it is important to remember that markets, life, and all things change on the margin. Because the previous US administrations have been complete and utter disasters, whether it be Obama or Bush, for 16 years American presidents have done nothing but attempt to maintain an increasingly fragile status quo.

Both presidents were marked with a catastrophic foreign policy. Bush pushed the US into one massive quagmire in both Iraq and Afghanistan, and then Obama threw accelerant on the fire spreading this disaster across the region which sparked the migrant crisis that continues to tear the European Project apart.

Now that Donald Trump is forging peace with North Korea, a trade deal with China, bringing about the end of ISIS and Iran in both Syria and Iraq, while forging stronger ties with a new (and improved) Saudi Regime, every IYI and geopolitical analyst seems to think the world is getting worse?

Probably the worst/biggest single day for geopolitical risk since I started @EurasiaGroup in 1998.

I almost wish I were joking, but this the quality of geopolitical analysis going on in today’s world. And at the heart of it is this emotional hatred and fear of Donald Trump and the unknown variables he brings to the table.

Now these are just a few examples, you can look at what’s going on with the US and China or most recently AMLO and Mexico or Trump’s domestic policies (big pharma reform is coming) but the point is the same – the consensus in most cases could not be more wrong if it tried. So stop following the consensus, turn on your brain and think for yourself. Or better yet, don’t, I’m happy to enjoy this edge for as long as possible. Because not only are investors refusing to play by the rules of the game, they’ve refused to understand how the biggest player impacts the game.

DISCLAIMER: This blog is the diary of a twenty something millennial who has never stepped foot inside a wall street bank. He has not taken an economic or business course since high school (which he is immensely proud of) and has been long gold since 2012 (which he is not so proud of). In short his opinions and experiences make him uniquely unqualified to give advice. This blog post is NOT advice to buy or sell securities. He may have positions in the aforementioned trades/securities. He may change his opinion the instant the post is published. In short, this blog post is pure fiction based loosely on the reality of the ever shifting narrative of the markets. These posts are meant for enjoyment and self reflection and nothing else. So ENJOY and REFLECT!